Saturday, July 3, 2010

The Goal II - It's Not Luck

Author:       Eliyahu M. Goldratt 
Published:   2005
Publisher:    Productivity & Quality Publishing 
Paperback: 284 pages

This business novel is a sequel to the book The Goal which had introduced the concepts of Theory of Constraints (TOC) and shown its application in a manufacturing scenario.
UniCo, a diversified conglomerate has decided to sell three loss making companies which are under its fold. Alex Rego, the hero of this book's prequel, now the Executive Vice President of UniCO is an has been given the responsibility to turn around these companies to fetch an attractive returns when they are sold.
He applies TOC concepts and techniques to Sales, Marketing, Inventory Control and Business Strategy and comes out with flying colors in this challenging task.
Through this novel, the Goldratt teaches us Thinking Process techniques for solving problems using Current Reality Tree, which incorporates UnDesirable Effects (UDEs) and then a Future Reality Tree. He also teaches us how to make use of a Transition Tree to move from Current Reality to Future Reality.In addition technique of Vendor Managed Inventory is also presented.
Very well written and absorbing read. However more diagrams to illustrate step-by-step how the above Trees evolved would have enabled better understanding of the techniques.
A must read for all the  Sales, Marketing and Business Strategy professionals !

Key Takeaways:
1. The three entities for a company's existence 
a) Make money now as well as in the future. 
b) Provide a secure and satisfying environment for employees now as well as in the future.
c) Provide satisfaction to the market now as well as in the future. No business strategy should violate any of the above entities.
 2. You can choose one of the entities as a major goal, but make the other two entities as a necessary conditions to satisfy the goal. All three entities must be satisfied.
3. Never build a strategy based on market forecasts, since their accuracy is not guaranteed.
4. Start with developing a competitive edge through products and services which eliminates the pain-points of the market.
5. Having established the competetive edge move immediately to find ways to segment the market.Enter into segments for which probability of many of the companies dropping off during the same time period is very small.
6. Markets oscillate. During boom time build up cash reserves. During recession,the solution does not lie in lay-offs to cut costs to improve bottom line especially if you have cash reserves. Lay-off is a vicious cycle.
7. Create enough flexibility in your workforce to ensure that every employee is serving several segements of the market.
8. With flexible workforce when a segment is up, you can shift focus away from less lucrative segements. If it goes down, you can shift focus to other segments which you did not fully exploit before. Then there will be rarely a need to lay off people. And all the three entities will be simultaneously satisfied.  (Apparently hardly any company applied this strategy  during the recent recession ! They stuck to the conventional wisdom of laying-off in large numbers !)

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